How did we get here?
1) 1787 - The Constitution is signed, mandating that only dollars convertible into gold and silver are to be issued as money by the U.S. Government.
2) 1780-1913 - Banks engage in fractional reserve banking. Repetitive boom bust cycles occur as banks expand credit during booms and subsequently contract it by writing off bad loans during busts.
3) Banks often fail during busts as the public demands access to their money. The bank runs expose the fact that the banks are insolvent, having lent out multiples more money than they have on deposit.
3) Despite these boom/busts, over time value of the dollar holds steady because it is tied to gold. Base money can only increase at rate of physical gold increases.
4) 1913 - Powerful banking interests finally succeed at hoisting a banking cartel on the American public called the Federal Reserve System. Bank runs are no longer a problem for the insolvent banking industry as they can borrow money from the Fed to cover redemptions.
6) The U.S. Dollar is still backed by gold but now instead of the Treasury issuing the dollar bills, they are issued by the Fed and called Federal Reserve notes. This arrangement somewhat obscures the nature of money creation from the public's eyes as it must go through an additional step. The U.S. Government borrows money by issuing bonds. If need be, the Fed can buy those bonds with money it has created out of nothing. This arrangement is popular among politicians because it allows the government to run deficits and be assured of a buyer for their bonds to finance this borrowing. The process of the Fed buying bonds from newly created money, now called monetization or quantitative easing, is held back by the dollar being tied to gold.
Complete article-:
http://freemarketeconomicsinastory.blogspot.com/
1) 1787 - The Constitution is signed, mandating that only dollars convertible into gold and silver are to be issued as money by the U.S. Government.
2) 1780-1913 - Banks engage in fractional reserve banking. Repetitive boom bust cycles occur as banks expand credit during booms and subsequently contract it by writing off bad loans during busts.
3) Banks often fail during busts as the public demands access to their money. The bank runs expose the fact that the banks are insolvent, having lent out multiples more money than they have on deposit.
3) Despite these boom/busts, over time value of the dollar holds steady because it is tied to gold. Base money can only increase at rate of physical gold increases.
4) 1913 - Powerful banking interests finally succeed at hoisting a banking cartel on the American public called the Federal Reserve System. Bank runs are no longer a problem for the insolvent banking industry as they can borrow money from the Fed to cover redemptions.
6) The U.S. Dollar is still backed by gold but now instead of the Treasury issuing the dollar bills, they are issued by the Fed and called Federal Reserve notes. This arrangement somewhat obscures the nature of money creation from the public's eyes as it must go through an additional step. The U.S. Government borrows money by issuing bonds. If need be, the Fed can buy those bonds with money it has created out of nothing. This arrangement is popular among politicians because it allows the government to run deficits and be assured of a buyer for their bonds to finance this borrowing. The process of the Fed buying bonds from newly created money, now called monetization or quantitative easing, is held back by the dollar being tied to gold.
Complete article-:
http://freemarketeconomicsinastory.blogspot.com/
